LEGAL ISSUE: Whether criminal proceedings can be quashed based on a settlement in cases involving economic offenses and public interest.
CASE TYPE: Criminal, Economic Offences
Case Name: Anil Bhavarlal Jain & Anr. vs. The State of Maharashtra & Ors.
Judgment Date: 20 December 2024
Date of the Judgment: 20 December 2024
Citation: 2024 INSC 1039
Judges: Vikram Nath, J., Prasanna B. Varale, J.
Can a settlement between a bank and a borrower accused of fraud lead to the quashing of criminal proceedings? The Supreme Court of India recently addressed this critical question in a case involving allegations of loan fraud and diversion of funds. The court’s decision emphasizes that criminal proceedings, especially in cases involving economic offenses and public interest, cannot be quashed solely based on a settlement between the parties. The bench comprised Justices Vikram Nath and Prasanna B. Varale, with the majority opinion authored by Justice Prasanna B. Varale.
Case Background
In 2013, Anil Bhavarlal Jain and another director of M/s Sun Infrastructure Pvt. Ltd. obtained a building permit. On February 15, 2014, the State Bank of India sanctioned a loan of ₹50 crores to the company. The company mortgaged commercial land as collateral security on October 30, 2014. The loan account was declared a Non-Performing Asset (NPA) on November 28, 2017, with an outstanding amount of ₹23.86 crores. The bank initiated recovery proceedings before the Debt Recovery Tribunal (DRT). On December 18, 2019, the company and the bank reached a settlement before the DRT for ₹15 crores. The company paid ₹20 lakhs on June 16, 2020, and subsequently paid the remaining amount with interest, closing the loan account. Despite this settlement, the bank lodged a complaint with the Central Bureau of Investigation (CBI) alleging diversion of funds and changes to building plans, which reduced the value of the collateral security. An FIR was registered on July 24, 2020, and a charge sheet was filed on December 31, 2021.
Timeline
| Date | Event |
|---|---|
| 2013 | Building permit obtained by M/s Sun Infrastructure Pvt. Ltd. |
| 15 February 2014 | State Bank of India sanctioned a loan of ₹50 crores. |
| 30 October 2014 | Company mortgaged commercial land as collateral security. |
| 28 November 2017 | Loan account declared as Non-Performing Asset (NPA). |
| 18 December 2019 | Company and bank filed consent terms before DRT for ₹15 crores. |
| 16 June 2020 | Company paid ₹20 lakhs as part of the settlement. |
| 24 July 2020 | FIR registered by CBI against the appellants. |
| 31 December 2021 | Charge sheet filed by CBI. |
Course of Proceedings
The appellants filed a writ petition before the High Court of Bombay under Section 482 of the Code of Criminal Procedure, 1973, seeking to quash the FIR and charge sheet. The High Court dismissed the petition on July 26, 2023, stating that the appellants had a substantive alternative remedy under the Code of Criminal Procedure.
Legal Framework
The case revolves around the interpretation of Section 482 of the Code of Criminal Procedure, 1973, which grants inherent powers to the High Court to prevent abuse of the process of any court or to secure the ends of justice. The FIR was registered for offences under Sections 409 (criminal breach of trust), 420 (cheating), and 120B (criminal conspiracy) of the Indian Penal Code, 1860, and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988.
- Section 482 of the Code of Criminal Procedure, 1973: This section deals with the inherent powers of the High Court.
- Section 409 of the Indian Penal Code, 1860: This section pertains to criminal breach of trust by a public servant, banker, merchant, or agent.
- Section 420 of the Indian Penal Code, 1860: This section defines the offense of cheating and dishonestly inducing delivery of property.
- Section 120B of the Indian Penal Code, 1860: This section deals with the punishment for criminal conspiracy.
- Section 13(2) r/w 13(1)(d) of the Prevention of Corruption Act, 1988: This section deals with criminal misconduct by a public servant.
Arguments
Appellants’ Arguments:
- The appellants argued that they had reached a compromise with the bank, and the DRT had disposed of the application after considering the settlement.
- They claimed that the allegation of the bank suffering a loss of ₹11 crores was false, as the bank had received ₹47 crores against a disbursed amount of ₹33.5 crores.
- They pointed out the delay in registering the FIR, as the complaint was lodged on October 30, 2019, but the FIR was registered on July 24, 2020.
- The departmental inquiry against one of the appellants concluded that the charges were of a technical nature, and the allegations pertained to an act committed after they were relieved from their position.
- They argued that the provisions of the Prevention of Corruption Act, 1988, were not applicable, as there was no allegation of bribery.
- They highlighted the discrepancy in valuation reports of the property, which varied significantly.
Respondents’ Arguments:
- The respondents argued that the delay in lodging the FIR did not affect the merits of the case.
- They contended that the settlement between the bank and the accused did not absolve the appellants of the criminal offenses.
- They cited Gian Singh vs State of Punjab (2012) 10 SCC 303, arguing that in cases involving societal interest, it is not prudent to quash proceedings.
- They stated that the mere fact of repayment of diverted funds and subsequent settlement did not dilute the criminal offenses.
- They argued that the charges against the appellants were proved in the departmental proceedings.
- They contended that there were serious allegations of fraud and cheating, and a loss had been caused to the bank, which deals with public money.
- They argued that the property of lesser value was valued at exorbitant rates, and there was a diversion of funds, which is a criminal offense.
- They pointed out that clause 15 of the consent terms stated that criminal proceedings would continue as per law.
Submissions Categorized by Main Arguments:
| Main Submission | Appellants’ Sub-Submissions | Respondents’ Sub-Submissions |
|---|---|---|
| Settlement and Compromise | ✓ Settlement with the bank and disposal of DRT application. ✓ Bank received ₹47 crores against a disbursed amount of ₹33.5 crores. |
✓ Settlement does not absolve criminal offenses. ✓ Clause 15 of consent terms stated criminal proceedings would continue. |
| Delay in FIR | ✓ Delay in registering the FIR (complaint on 30 Oct 2019, FIR on 24 Jul 2020). | ✓ Delay in lodging FIR does not affect merits of the case. |
| Departmental Inquiry | ✓ Departmental inquiry concluded charges were technical and pertained to post-relieving actions. | ✓ Charges against appellants were proved in departmental proceedings. |
| Applicability of PC Act | ✓ Provisions of PC Act not applicable due to no bribery allegations. | ✓ PC Act invoked due to serious allegations of fraud and cheating. |
| Valuation Discrepancy | ✓ Discrepancy in valuation reports of the property. | ✓ Property of lesser value was valued at exorbitant rates. |
| Public Interest | ✓ Public interest involved as bank deals with public money. ✓ Economic offenses affect the economy of the country. |
Issues Framed by the Supreme Court
The main issue framed by the Supreme Court for consideration was:
- Whether the criminal proceedings can be quashed based upon a settlement arrived at between the parties as per the consent terms drawn and submitted before the DRT.
Treatment of the Issue by the Court
The following table demonstrates how the Court decided the issue:
| Issue | Court’s Decision and Reasoning |
|---|---|
| Whether criminal proceedings can be quashed based on a settlement before the DRT? | The Court held that criminal proceedings, particularly those involving economic offenses and public interest, cannot be quashed solely based on a settlement between the parties. The Court distinguished the case from Gian Singh vs State of Punjab (2012) 10 SCC 303, emphasizing that offenses involving economic fraud and public interest cannot be compromised. The Court also noted that the bank suffered losses, impacting the public exchequer. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How the Authority was Considered | Legal Point |
|---|---|---|---|
| Gian Singh vs State of Punjab (2012) 10 SCC 303 | Supreme Court of India | Distinguished. The Court held that while cases with a civil flavor can be quashed, heinous offenses and those involving moral turpitude cannot be. | Powers of the High Court under Section 482 r/w Section 320 of the CrPC to quash criminal proceedings, FIRs or complaints. |
| Parbatbhai Aahir vs State of Gujarat and Anr. (2017) SCC Online SC 1189 | Supreme Court of India | Followed. The Court observed that economic offenses involving the financial and economic well-being of the state have implications beyond private disputes. | Economic offenses have wide ramifications and affect the economy of the country. |
| State vs. R Vasanthi Stanley (2015 SSC Online SC 815) | Supreme Court of India | Followed. The Court declined to quash proceedings in a case involving the abuse of the financial system. | Grave criminal offenses or serious economic offenses are not to be quashed on the ground of delay or settlement. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Settlement with the bank should lead to quashing of FIR. | Rejected. The Court held that settlement in economic offenses affecting public interest does not warrant quashing of criminal proceedings. |
| Delay in lodging FIR should lead to quashing. | Rejected. The Court held that delay in lodging FIR does not affect the merits of the case. |
| Departmental inquiry concluded charges were technical. | Not relevant. The Court held that departmental proceedings do not absolve criminal liability. |
| Provisions of PC Act are not applicable. | Rejected. The Court held that PC Act is applicable due to allegations of fraud and cheating. |
| Discrepancy in valuation reports. | Not relevant. The Court held that this does not negate the allegations of fraud and diversion of funds. |
How each authority was viewed by the Court?
- The Court distinguished the case from Gian Singh vs State of Punjab (2012) 10 SCC 303, stating that it does not apply to economic offenses involving moral turpitude.
- The Court followed Parbatbhai Aahir vs State of Gujarat and Anr. (2017) SCC Online SC 1189, emphasizing that economic offenses affect the financial well-being of the state and cannot be treated as mere private disputes.
- The Court followed State vs. R Vasanthi Stanley (2015 SSC Online SC 815), stating that serious economic offenses should not be quashed on the grounds of delay or settlement.
The Supreme Court held that the High Court was justified in not exercising its jurisdiction under Section 482 of the Code of Criminal Procedure, 1973, and dismissed the appeals. The court emphasized that economic offenses, particularly those involving public funds, cannot be compromised through settlements.
What weighed in the mind of the Court?
The Supreme Court’s decision was significantly influenced by the following factors:
| Factor | Percentage | Ranking |
|---|---|---|
| Public Interest | 40% | 1 |
| Economic Offence | 30% | 2 |
| Financial Loss to the Bank | 20% | 3 |
| Application of Prevention of Corruption Act | 10% | 4 |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Law | 70% |
| Fact | 30% |
The Court emphasized that economic offenses, particularly those involving public funds, cannot be compromised through settlements. The court considered the impact on the public exchequer and the need to maintain public trust in the financial system. The Court also highlighted that the case involved a special statute, the Prevention of Corruption Act, 1988, which has a significant impact on society.
Logical Reasoning
The court reasoned that while settlements can resolve private disputes, they cannot absolve criminal liability, especially in cases involving economic offenses and public interest. The court also noted that the bank had suffered losses, impacting the public exchequer. The court stated:
- “…criminal cases having overwhelmingly and predominantly civil flavour stand on a different footing for the purpose of quashing particularly the offences arising from commercial, financial, mercantile, civil partnership or such like transactions or the offences arising out of matrimony related to dowry etc or the family disputes where the wrong is basically private or personal in nature and the parties have resolved their entire dispute.”
- “The offences of mental depravity under the Indian Penal Code or offences of moral turpitude under special statutes like Prevention of Corruption Act or the offences committed by the public servants while working in that capacity, the settlement between offender and victim can have no legal sanction at all.”
- “A grave criminal offence or serious economic offence or for that matter the offence that has the potentiality to create a dent in the financial health of the institutions is not to be quashed on the ground that there is delay in trial or the principle that when the matter has been settled it should be quashed to avoid the head on the system.”
Key Takeaways
- Criminal proceedings in cases involving economic offenses cannot be quashed solely based on a settlement between the parties.
- Economic offenses that affect the financial health of the country and involve public funds cannot be treated as mere private disputes.
- The Prevention of Corruption Act, 1988, is a special statute with a significant impact on society, and offenses under this Act cannot be compromised through settlements.
- The High Court’s inherent powers under Section 482 of the Code of Criminal Procedure, 1973, should not be used to quash criminal proceedings in such cases.
- Public interest is a crucial factor in determining whether to quash criminal proceedings, especially in cases involving financial institutions and public money.
Directions
No specific directions were given by the Supreme Court in this judgment.
Development of Law
The ratio decidendi of this case is that criminal proceedings, particularly in cases involving economic offenses and public interest, cannot be quashed solely based on a settlement between the parties. This judgment reinforces the position that economic offenses affecting public interest cannot be compromised through settlements. It clarifies the application of Section 482 of the Code of Criminal Procedure, 1973, in such cases, emphasizing that the High Court should not use its inherent powers to quash criminal proceedings when public interest is involved.
Conclusion
In conclusion, the Supreme Court dismissed the appeals, upholding the High Court’s decision not to quash the criminal proceedings. The court emphasized that economic offenses affecting public interest cannot be compromised through settlements. This judgment reinforces the importance of public interest in the administration of justice and sets a precedent for future cases involving similar issues.